Downloaded from http://tobaccocontrol.bmj.com/ on June 5, 2015 - Published by group.bmj.com
Editorial
Taxes, prices and illicit trade: the need for sound evidence Frank J Chaloupka Extensive research from around the world has documented the effectiveness of tobacco tax and price increases in reducing tobacco use by promoting cessation among current users, deterring young people from taking up tobacco use, and reducing how much continuing users consume. Internal tobacco company documents show that the industry clearly understands this and that this knowledge informs its pricing, marketing, lobbying and other strategies. The collection of papers in this special issue addresses various aspects of how this plays out in practice and provides options for maximising the effectiveness of tax and price policies for achieving public health goals.
DISTORTING THE DATA Exaggerating the role of tax and price levels and differentials for tobacco products in increasing illicit trade is a key element of the tobacco industry’s playbook for discouraging governments from adopting higher taxes and, increasingly, for opposing other tobacco control policies, including strong graphic warning labels, plain packaging, bans on flavoured products, and other product standards. Several of the papers in this issue highlight how the industry distorts the data and misleads the public and policy makers on the issue of illicit tobacco trade. Rowell et al1 highlight how the industry has produced estimates of the extent of illicit trade in the UK to argue that the problem has increased over time and has been effective in getting this argument into the popular press, thus creating the incorrect impression that illicit trade in the UK is high and rising, while objective data show the opposite. Similarly, van Walbeek2 uses revenue data to show that illicit tobacco trade in South Africa has not been consistently rising over time, contrary to industry claims that it had increased sharply and steadily since the 1990s, costing the government considerable revenues. Stoklosa and Ross3 use alternative approaches to estimate the extent of illicit trade in Warsaw and Correspondence to Professor Frank J Chaloupka, Department of Economics, University of Illinois at Chicago, Institute for Health Research and Policy, Chicago, IL 60608, USA; [email protected] Chaloupka FJ. Tob Control May 2014 Vol 23 No e1
compare these estimates to industry estimates, likewise concluding that the industry significantly exaggerates the extent of the problem. Skafida et al4 conclude that this deception is even more of a problem in Bulgaria, where the industry not only makes exaggerated claims but has also been complicit in illicit trade, initially in efforts to gain access to Bulgaria’s tobacco markets and more recently in attempts to deter tobacco tax increases. Gilmore et al5 provide a careful assessment of the estimates produced by KPMG in the Philip Morris International sponsored ‘Project Star’ that highlights a variety of problems that contribute to overestimates of the extent of illicit trade in many European Union countries, particularly Western European countries and countries where cross-border shopping is common. Finally, Gilmore and Reed6 document the inconsistency between the industry argument that tax and price increases will promote illicit trade and the industry’s own price strategies, using data on changes in taxes and prices in the UK between 2006 and 2009. As they show, while taxes went up several times, retail price increases for most brands far exceed the tax increases, given significant industry price increases that account for about half of the retail price increase. They go on to note that if the industry was truly concerned about the impact of higher prices on illicit trade, they would be unlikely to push up prices to the extent that they did during this period. Together, these papers provide compelling evidence that the industry systematically overstates the extent of illicit tobacco trade and that estimates produced by the industry should not be considered by policymakers when assessing the extent of the problem in their countries and when considering how tax and price increases and/or strong tobacco control policies will influence illicit trade.
MEASURING ILLICIT TRADE While the industry exaggerates the extent of the problem, other papers in this issue show that illicit tobacco trade is a significant concern in at least some jurisdictions, reducing government revenues and increasing tobacco use in these jurisdictions. Joossens et al7 use data collected in surveys of about 1000 adults in each of
18 European Union (EU) countries to develop a measure of illicit packs based on self-reported information on purchase location and price, as well as pack inspections focused on tax stamps and warning labels. They estimate relatively limited illicit trade penetration, with
Editorial
Taxes, prices and illicit trade: the need for sound evidence Frank J Chaloupka Extensive research from around the world has documented the effectiveness of tobacco tax and price increases in reducing tobacco use by promoting cessation among current users, deterring young people from taking up tobacco use, and reducing how much continuing users consume. Internal tobacco company documents show that the industry clearly understands this and that this knowledge informs its pricing, marketing, lobbying and other strategies. The collection of papers in this special issue addresses various aspects of how this plays out in practice and provides options for maximising the effectiveness of tax and price policies for achieving public health goals.
DISTORTING THE DATA Exaggerating the role of tax and price levels and differentials for tobacco products in increasing illicit trade is a key element of the tobacco industry’s playbook for discouraging governments from adopting higher taxes and, increasingly, for opposing other tobacco control policies, including strong graphic warning labels, plain packaging, bans on flavoured products, and other product standards. Several of the papers in this issue highlight how the industry distorts the data and misleads the public and policy makers on the issue of illicit tobacco trade. Rowell et al1 highlight how the industry has produced estimates of the extent of illicit trade in the UK to argue that the problem has increased over time and has been effective in getting this argument into the popular press, thus creating the incorrect impression that illicit trade in the UK is high and rising, while objective data show the opposite. Similarly, van Walbeek2 uses revenue data to show that illicit tobacco trade in South Africa has not been consistently rising over time, contrary to industry claims that it had increased sharply and steadily since the 1990s, costing the government considerable revenues. Stoklosa and Ross3 use alternative approaches to estimate the extent of illicit trade in Warsaw and Correspondence to Professor Frank J Chaloupka, Department of Economics, University of Illinois at Chicago, Institute for Health Research and Policy, Chicago, IL 60608, USA; [email protected] Chaloupka FJ. Tob Control May 2014 Vol 23 No e1
compare these estimates to industry estimates, likewise concluding that the industry significantly exaggerates the extent of the problem. Skafida et al4 conclude that this deception is even more of a problem in Bulgaria, where the industry not only makes exaggerated claims but has also been complicit in illicit trade, initially in efforts to gain access to Bulgaria’s tobacco markets and more recently in attempts to deter tobacco tax increases. Gilmore et al5 provide a careful assessment of the estimates produced by KPMG in the Philip Morris International sponsored ‘Project Star’ that highlights a variety of problems that contribute to overestimates of the extent of illicit trade in many European Union countries, particularly Western European countries and countries where cross-border shopping is common. Finally, Gilmore and Reed6 document the inconsistency between the industry argument that tax and price increases will promote illicit trade and the industry’s own price strategies, using data on changes in taxes and prices in the UK between 2006 and 2009. As they show, while taxes went up several times, retail price increases for most brands far exceed the tax increases, given significant industry price increases that account for about half of the retail price increase. They go on to note that if the industry was truly concerned about the impact of higher prices on illicit trade, they would be unlikely to push up prices to the extent that they did during this period. Together, these papers provide compelling evidence that the industry systematically overstates the extent of illicit tobacco trade and that estimates produced by the industry should not be considered by policymakers when assessing the extent of the problem in their countries and when considering how tax and price increases and/or strong tobacco control policies will influence illicit trade.
MEASURING ILLICIT TRADE While the industry exaggerates the extent of the problem, other papers in this issue show that illicit tobacco trade is a significant concern in at least some jurisdictions, reducing government revenues and increasing tobacco use in these jurisdictions. Joossens et al7 use data collected in surveys of about 1000 adults in each of
18 European Union (EU) countries to develop a measure of illicit packs based on self-reported information on purchase location and price, as well as pack inspections focused on tax stamps and warning labels. They estimate relatively limited illicit trade penetration, with
